‘Murky deals’ surrounding Medoff Vodka

Allegations have emerged that the owners of Medoff, one of the Ukraine’s lagrest vodka brands, are embroiled in deals to escape the company’s debt and bankruptcy, writes Nick Kochan.

Some sources are speculating that the deal to buy the vodka business back from the banks, after its bankruptcy, was actually arranged by the former owners and not a completely new company.

At the time the deal appeared to be set up by Neil Smith, who was a financial adviser and is now Medoff’s senior manager. The allegations that it is actually the former owners behind the deal, would mean they are potentially able to once again take ownership of the company while escaping most of the debts owed to the banks in the wake of the bankruptcy.

This is a classic Eastern European story but this time in the drinks industry.

The drinks assets were then repackaged under the name Crimean Vodka. Crimean, based in Simferopol in south-central Ukraine, makes many of Ukraine’s largest vodka brands, including Pryrodna Kolektsia, Nasha Marka, Khutorok, Mernaya, and Longmixer, as well as the internationally known Medoff, which goes head on in the Ukrainian market place with the industry leader Nemiroff.

But the clarity of Smith’s role becomes more obscure as the allegation that businessman Andriy Okhlopkov – who has been connected with the company for a decade – retains an “ultimate beneficial ownership” interest through a complex web of Cyprus companies and Luxembourg trusts, according to reliable sources in the region.

The highly influential Ukrainian businessman is a supporter of Ukrainian president Viktor Yanukovitch. Other observers of Ukraine’s business community say that Ukrainian oligarchs Viktor Pinchuk and Valeri Khoroshkovsky also have financial interests in the vodka business. The ownership of Soyuz-Victan has been fiercely fought over since the early days of an independent Ukraine and the two larger oligarchs – who own much of Ukraine’s business – have reportedly had interests in Soyuz-Victan since at least 2000.

The deal with Smith may have been hatched by Okhlopkov in the summer of 2011 when a proposal surfaced to buy the vodka business, using capital loaned by a large Russian institution through its Austrian bank. The use of a Cyprus company and a Luxembourg trust enabled Smith to present himself as the new owner of Eastern Beverage Company, which traded as Crimean Vodka, without having apparent reference to Medoff’s previous owner. Yet some sources claim that Okhlopkov may have the right to buy the company that owned the shares in Eastern Beverage Company for a dollar.